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Extracted from Annual Report 2021

Chairman

Dear Fellow Shareholders,

On behalf of the Board of Directors (the “Board”), I am pleased to share that Sunpower achieved a resilient performance in the financial year ended 31 December 2021 (“FY2021”) despite cost pressures on the GI projects' production operations from surging feedstock prices amidst the continuous across-the-board increases in commodity prices during the year. Following the disposal and deconsolidation of the M&S business on 30 April 2021, the Group recorded revenue of more than RMB3.4 billion and group PATMI without financial effects of CBs of RMB435.8 million1 in FY2021, up 15.6% YoY. Group underlying operating cash flow was a robust RMB244.3 million.

Disposed M&S Business To Strategically Focus On GI, Unlock Value And Improve Investment Returns For Investors

During 2021, the Group disposed its M&S Business at an attractive consideration of RMB2.29 billion. A major portion of the net proceeds was paid as a Special Dividend to shareholders and bondholders in recognition of their support and to improve their investment returns. The Special Dividend was paid in two tranches of RMB0.6794 (S$0.1406)2 and RMB0.4833 (S$0.1006)3 per share on 18 June 2021 and 21 July 2021 respectively, for a total of RMB1.1627 (S$0.2412) per share.

Growing the GI business has been the strategic direction for Sunpower since 2015 and the disposal of the M&S business has now enabled it to strategically focus even more on the GI business, which owns and operates a sizeable and valuable portfolio of centralised plants that supply clean steam to industrial parks, sell clean electricity to the State Grid and provide clean heating to residential households on long-term (typically 30 years) exclusive supply concessions.

The Group's adaptable and reliable business model combines the circular economy zero-waste resource utilisation model and leading technologies to form a strong competitive moat. As the pioneer in the development of centralised circular economy infrastructure, such as the Shantou Project which received incentives from the central government for air pollution and control, the Group has a strong supplier role in the provision of steam, a non-discretionary production input, to industrial users. In addition, it is able to increase its geographical reach to achieve economies of scale with its long-distance steam transmission pipeline technology. Through the application of advanced technologies, including environmental protection, energy-saving and blended combustion of sludge technologies, Sunpower consumes the treated sewage water and combusts the sludge in the industrial parks, as well as converts its polluted matters into useful products and sells them to the local factories, thus keeping the resources recycled within a closed loop and increasing economic benefits. As a result, the Group provides innovative solutions to the government and the industrial parks that help them to achieve ultra-low emissions.

With the vigorous promotion of the development of circular economy industrial parks, including centralised steam facilities4, by the NDRC as part of the “14th Five-Year Plan”, Sunpower's growth strategy is strongly aligned with national environmental policies. To-date, the Group has successfully established a sizeable portfolio of 9 projects in operation, 1 in trial production and 1 under construction. With their exclusive concessions or natural defacto exclusivity, and diverse and captive end-users in the industrial parks that are located in economically-vibrant provinces, the GI Projects are expected to generate recurring income and cash flows for the Group over the long-term.

GI Business Recorded A Resilient Performance Despite Challenges

Sunpower's GI business saw robust demand for steam by industrial customers continue unabated in FY2021. Total steam sales volume grew 45.2% YoY to a record high of 7.93 million tons, a firm testament to its leading position as an industrial steam supplier in China.

Consequently, GI recurring revenue5 rose 53.3% YoY to RMB2,047.3 million in FY2021, driven by the ramp-up of highquality GI projects including Shantou Project Phase 16. Despite the extraordinary rise of feedstock prices in 2021, the Group's strong operational management capabilities, implementation of mitigation measures and the price formation mechanism that links the cost of feedstock to the price of steam have allowed the Group to keep GI recurring EBITDA7 robust at RMB466.2 million, while GI recurring PATMI8 stayed positive at RMB135.7 million. GI operating cashflow9 grew 43.4% YoY to RMB270.6 million, which continues to demonstrate the GI projects' ability to generate strong recurring cashflow10. As the GI projects are still ramping up, the long-term Net Present Value (“NPV”) of future cashflows generated by the Group's GI business is expected to be substantially higher than the latest period.11 I wish to thank the disciplined management team for all their tireless efforts and hard work that went into achieving this resilient performance.

Further, solid progress continued to be made on the expansion of the GI project portfolio. Xintai Zhengda Project Phase 1 has added two more boilers to complement the first biomass boiler that has been ramping up since 4Q 2020, one boiler of Shantou Project Phase 2 is now in trial production and the Group is working hard to bring other boilers online as soon as possible to meet the strong demand, Tongshan Project has commenced trial production and Shanxi Xinjiang Project is expected to start operations in 2022. Shantou Project Phase 1 is in full operation to meet strong steam demand from 128 qualified companies that have substantially moved into the industrial park, Changrun Project started steam supply to new customer Sanli in May 2021, and construction of the city heating network system of Xinyuan Plant has been completed with heat supply planned to start in the heating season of 2022. These new and expanded projects can be expected to lead to higher recurring income and cash flows for the Group that will improve the investment returns of the GI portfolio.

Focused on Sustainable Development That Improves Shareholders' Value Over The Long Term

As we press ahead, the Company's focus will be firmly on a sustainable development path that improves shareholders' value, and to continue to execute a two-pronged strategy that emphasises the quality of development. The Group will further enhance existing GI projects to achieve even higher quality growth, which will further boost their investment returns and asset value in the long term. In addition, it will also tap into its proven ability to identify and invest in additional promising GI projects that meet the investment hurdles of the Company.

Coupled with an experienced, dedicated and disciplined management team in place to provide high quality leadership, as well as multiple potential sources of funds, the Group believes it is in a favourable position to continue to execute its growth strategy and prepare for the next chapter of development.

Guo Hong Xin
Non-Executive Chairman

1 Including gain on disposal of RMB934.3 million and expenses incurred by the Company in connection with the M&S disposal, namely the excess cash dividend paid to Convertible Bond holders which is recognised as finance cost, project adviser fees and withholding taxes.
2 Based on the actual exchange rate of SGD1: RMB4.8320 on 20 May 2021.
3 Based on the actual exchange rate of SGD1: RMB4.8030 on 2 July 2021.
4 https://www.ndrc.gov.cn/xwdt/tzgg/202107/P020210707325480706163.pdf
5 GI recurring revenue refers to recurring revenue generated by the GI business. It excludes one-time contributions from internal EPC services for BOT projects that are provided by the Group's internal project management department, recognised in accordance with IFRIC 12 Service Concession Arrangements.
6 Shantou Phase 1 became operational in 4Q 2020.
7 GI recurring EBITDA refers to the recurring Earnings before Interest, Tax, Depreciation and Amortisation of the GI Business. It excludes gains or costs incurred by way of the M&S disposal such as excess cash dividends, gain on disposal, withholding tax, etc.; one-time contributions from internal EPC services for BOT projects that are provided by the Group's internal project management department, recognised under IFRIC 12 Service Concession Arrangements; as well as expenses incurred by the Company that are not related to the running of the GI Business, such as listing-related expenses and remuneration of the employees at the group level, etc., which reflects the true operating results of the GI business.
8 GI recurring PATMI refers to the recurring Profit After Tax and Minority Interests of the GI Business. It excludes gains or costs incurred by way of the M&S disposal such as excess cash dividends, gain on disposal, withholding tax, etc.; one-time revenue contributions from internal EPC services for BOT projects that are provided by the Group's internal project management department, recognised under IFRIC 12 Service Concession Arrangements; as well as expenses incurred by the Company that are not related to the running of the GI Business, such as listing-related expenses and remuneration of the employees at the group level, etc., which reflects the profit of GI business attributable to the Group.
9 GI operating cashflow refers to cashflow generated by operating activities of the GI Business, and excludes CB interest of RMB21.0 million in FY2021.
10 The Company uses the terms “GI recurring revenue”, “GI recurring EBITDA”, “GI recurring PATMI”, and “GI operating cashflow” to reflect the true operating results of the GI business.
11 Based on the Company's long-term discounted cashflow forecasts.
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